Are you sure that your multi-level marketing business isn't a pyramid scheme?

Imagine this: It's a lazy Saturday afternoon and you're relaxing yourself. Instead of reading a nice book, you decide to log in at your Facebook account and catch up with your long-lost friends.

As you're browsing your news feed, you see some of your friends posting pictures of thousands of pesos and pictures of brand new cars and brand new houses.

Pyramid scheme or multi-level marketing?

You notice that all these posts contain this tagline:

"Thanks, (company name)! Friends, join this company too so you can earn lots of money like me! Send me a direct message now!"

Sometimes, the message can also be something like:

"My gosh, it's so easy to earn money! Jejejeje. Look, I just bought this car today because of what I've earned at (company name)! Message me, hurry!"

Now, while I find these messages funny, because they're obviously fake, the number of people who get tempted into joining these "multi-level marketing businesses" is not a laughing matter.

What is a "multi-level marketing" business?

In "multi-level marketing", you're supposed to recruit people to be a distributor of the company's products or services. These people you recruit and the people that your recruits recruited will all be a part of your "down-line."

You get paid when the people in your down-line sell the company's products/services to others.

Simple, right?

Yes. In fact, it's so simple that a lot of Filipinos sign up immediately after hearing all about it.

However, did you know that a lot of multi-level marketing companies are actually just pyramid schemes in disguise? Pyramid schemes are illegal.

What is a pyramid scheme?

Now, multi-level marketing by itself is not illegal. What makes it illegal is if income primarily comes from bringing in new recruits, not from selling products/services.

In pyramid schemes, money from new members is used to give income to old members.

This is why these companies tell you to recruit, not really to sell. If you don't recruit, no new member will join, so, no income will be given to old members.

What are the seven signs of a pyramid scheme?

1. No product/service or the product/service is inappropriately priced.

If there is no genuine product or authentic service that you're supposed to sell, then it's a warning sign already.

How are you supposed to earn income if there is nothing to sell, diba? Through recruits? Then it's a pyramid scheme.

If there is a product or service, but it's inappropriately priced, then consider it as a warning sign, too. For example, if a product is actually worth P2,000 in the current market, and they're selling it for P12,000, you might want to think twice.

Most likely, a small part will be used to cover the expenses, while the larger part will be used to give income to the old members.

2. They tell you that you can earn "easy money" just by staying at home, recruiting other people (mostly through the Internet) and giving testimonials.

Of course they'll tell you it's easy money - they want you to join right away!

There's no such thing as easy money. If it sounds too good to be true, it's probably a scam.

3. They tell you that you can "get rich quick".

Some would say that your low-risk investment would immediately double in such a short span of time.

Remember that in investing, there's a risk-return trade-off.

The lower the risk, the lower the potential of return.

The higher the risk, the higher the potential of return. Invest for long-term so the risk is managed.

If the multi-level marketing is saying that they're a low-risk and high-return and short-term "investment", then it's most definitely pyramid scheme!

4. You're supposed to pay a fee for joining.

Multi-level marketing is there because its members sell products.

If you're required to buy-in or pay before selling something, it's best to think twice, do more research and never sign anything yet.

5. There is no substantial proof of revenue from sales.

Since you'll be joining a company, you're sure to be curious about their revenue, right?

Try asking the company for CPA-audited financial statements about their revenue. Multi-level marketing companies are supposed to earn income from selling, not from recruiting.

6. They focus on recruiting, not selling.

The company's training programs are all about recruiting new members to join. It should be about selling products.

You get more income from your commission from recruiting. You're supposed to get more income from selling!

7. You don't really understand how you'll be compensated.

When you're into sales, you can easily compute how much you'll earn based on how many products you'll sell.

Calculating your commission is supposed to be simple, straightforward and sensible.

If you're given a complicated compensation structure, and you can't really determine your income because it's based on recruiting, consider it a warning sign.

Friends, you worked hard for your money.

Why should you invest in something that you don't understand?

You're not dumb:

"If you don't understand, don't shake his hand!"

Meaning, if you don't know how it works, don't enter a deal yet.

-----

Invest in Knowledge: ICON 2014

"Investment Conference Advocates Training Up Pinoys to
Invest"

Before investing any money on companies, why don't you try investing money on yourself first?

Listen to experienced finance and business professionals speak by attending the Investment Conference (iCON) 2014 on May 17, from 8:30 am-5:30 pm!

Win two (2) free tickets for yourself and for your friend! Simply leave a comment below related to this blog post. Include your full name, email address and cellphone number as well! :)

ICON
2014 is co-presented by the Bank of Philippine Islands and Sun Life Financial
Philippines, in partnership with the Registered Financial Planners (RFP) and
Stock Smarts. For more information and updates about the event, visit www.brandspeakasia.com/icon or contact the
Conference Secretariat through Deniece Pineda at 750.6510 or 501.5090.

Looking for a credible, professional and approachable financial advisor to help you reach your financial goals? You're in the right place.

Hi! Thank you for dropping by and visiting my page!

I am Lianne Laroya, RFP, a multi-awarded Financial Advisor of Sun Life Financial. I'm authorized by the Insurance Commission to act as Insurance Agent and by the Securities and Exchange Commission to act as Investment Solicitor.